Coca-Cola is trouncing Pepsi. Can the underdog turn things around?

Over time, however, the two have grown into very different companies. Coca-Cola’s various brands account for 17% of the American soft-drink market, compared with 11% for Pepsi’s, according to Beverage Digest, a research firm. But Pepsi now makes more than half its revenue from packaged food, including brands such as Lay’s and Quaker Oats. And unlike Coca-Cola, which around a decade ago shifted back to franchising out its American bottling operations, Pepsi has continued to make its own drinks in its home market. All this could soon change, however, as the underdog embarks on a turnaround effort that relies in part on becoming more like its long-term rival.

The last few years have been far bubblier for Coca-Cola, whose market value has risen by 23% since the start of 2023, than for Pepsi, which has slumped by 15% (see chart). Pepsi’s troubles stem in part from the hefty price rises it applied to its food and beverages amid the post-pandemic surge in inflation, exceeding even those of its competitors. That strategy has lately backfired as cost-conscious shoppers have fled to upstart brands and retailers’ in-house alternatives.

Pepsi is also suffering from the growing health-consciousness of consumers. Unease over ultra-processed foods has been bad for the snack business, as has the boom in weight-loss drugs. Slimming medicines may spell trouble for soda sales, too; Americans taking them reduce their purchases of soft drinks by about 7%, according to AlixPartners, a consultancy. That puts Pepsi at a disadvantage to Coca-Cola, which has a wide lead in the market for sugar-free cola: Americans imbibe about 2.5 times as much Diet Coke as they do Diet Pepsi. Coca-Cola was also much earlier to the market for protein shakes.

In September Pepsi got a jolt in the form of a letter from Elliott Management, an activist investor that had taken a stake worth $4bn in the business. It demanded that Pepsi cut costs, trim its product range, focus on marketing its core soda line-up and outsource bottling in America, among other things. Although Pepsi fended off the hedge fund’s attempts at securing a board seat, it agreed to various measures to appease Elliott, including lowering prices, axing a fifth of its snack brands and shutting some factories. Underperforming labels such as Quaker Oats may soon be sold off, too. And although the company still seems lukewarm about hiving off bottling, it is considering experimenting with doing so in a few American states.

There are early signs that the shift in strategy is paying off. On April 16th Pepsi reported that operating profits were up by 24% year on year in the first quarter of 2026, beating the 19% increase reported by Coca-Cola on April 28th. Fears that Pepsi might even be displaced by Dr Pepper as America’s second-biggest fizzy-drink pedlar appear to have subsided. Its acquisition of Poppi, a buzzy prebiotic-soda brand, for $2bn in May last year is also helping to boost beverage sales. The battle between the two soft-drink titans is far from over.

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